February 21, 2010

Last Minute Tax Deductions

February Tax Tip

Few adages apply more to tax season than the maxim, if it weren’t for the last minute, nothing would ever get done. And because of hectic schedules and a low spot on the priority list, the last minute is often when individuals and businesses find time to do their tax planning. People often wonder how they can maximize deductions come tax season, but the truth is effective tax planning takes place throughout the year to truly maximize deductions and lower tax liability come April 15.

But there is hope for those still looking to still shrink their 2009 tax liability (read: everyone). Here are four tax deductions you can still take advantage of for your 2009 return. Some, like donating to Haitian Earthquake Relief end soon though, so don’t wait too long because the last minute often arrives faster than you think.

Donate to Haiti
On January 25th Congress enacted a special tax relief provision which made all cash contributions between January 11 and March 1 to qualified organizations, specifically for relief of victims affected by the January 12 earthquake in Haiti, tax deductible on either the 2009 or 2010 return. Donations only qualify if made by text, check, credit card and debit card, so cash won’t work. There are several rules to follow, including itemizing your deductions, but this is an excellent effort by Congress to assist a region that suffered a terrible natural disaster. For a list of qualified organizations, such as the Red Cross, click here.

Go Green to Save Some Green
Unless you were too busy racing Humvees through Brazilian Rainforests last year, you might have heard that Congress created several green tax initiatives in 2009. If you were one of the savvy consumers who installed Energy Star windows, doors, air conditioners or other energy efficient products, you can get up to 30% of the products cost up to $1,500. Solar energy and geothermal heating installations qualify for a 30% of cost write off, and there are still some credits for hybrid cars or fuel efficient motorcycles. Check fueleconomy.gov for the list of vehicles that still qualify.

Stay Healthy, Save Taxes
If you’re one of the 23 percent of Americans with a high deductible, private health insurance plan, you can make contributions with pre-tax dollars up to April 15. This is an excellent strategy for individuals who generally stay healthy enough not to use their health insurance, as after age 59 and a half you can withdraw the money similar to an IRA. Individuals under 65 can fund an HSA account up to $7,950 in 2009.

Max Your Retirement
Not many people realize that IRA deductions are also available for contribution until April 15, which is an excellent way to chip away at your tax liability, though individuals covered by an employer’s 401(k) can’t claim an IRA deduction if their taxable income exceeds $65,000 ($109,000 for joint filers). You can make a maximum annual contribution of $5,000 or $6,000 if you’re 50 or older. And the tax breaks are especially robust for self-employed individuals: The contribution limit for a SEP-IRA is $49,000 and there are no income limits. If you don’t already have a SEP-IRA, talk with you CPA about creating one.

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